Considering some part time work?

14 August 2015

Considering some part-time work? If you have an allocated pension it may not be worth your while

This year the Government changed the way it assesses allocated or account-based pensions under the income test. The change means that if you earn an income from working you risk reducing your Age Pension entitlement permanently.

Deeming rather than deductible

Until this year, if you were retired and receiving an income from an account-based pension, the Government applied a deductible amount to your payments to determine how much of the Age Pension you were eligible to receive.

On 1 January 2015, the Government changed the rules and started deeming these pensions, applying an interest rate to the balance of your account instead of the deductible amount method. If you were receiving both income support (the Age Pension) and had an account-based pension before 1 January 2015, you were ‘grandfathered’ so this new approach doesn’t apply to you, but of course, there’s a catch.

A continuous Age Pension

The grandfathering only applies as long as you continuously receive the Age Pension. If you earn any sort of income that reduces your Age Pension to zero for a fortnight or more, then you lose your ‘grandfathered’ status—permanently. You also lose this status if you change to a new account-based pension product.What does losing ‘grandfathered’ status do?

The new deeming rules that came in on 1 January are generally less generous than the deductible amount method previously applied. The net effect is that, if you’re income-tested and you lose your grandfathered status, you’re likely to receive less Age Pension than you do now. If you’re assets-tested this change doesn’t affect you, although it might if you change to being income-tested for any reason.

So how does this relate to working?

While going back to work for a week or two might look attractive, if your income is a combination of your account-based pension and the Age Pension, then you might be putting your Age Pension at risk by working.

This all comes down to thresholds in the end. As a single person you can earn up to $4,212 in a year before it affects your Age Pension ($7,488 for couples). This includes your salary, account-based pension income and any other income. Once you go over that threshold, the Government reduces your Age Pension by 50 cents for every dollar you earn.

As long as you earn less than the amount that would reduce your Age Pension payment in any given fortnight to zero, you’re okay. If you earn more than that amount just once, then you lose your grandfathered status and all your future Age Pension payments will be calculated using the new deeming rules.

Take Bill for example

Bill, who is single, works casually two days a week earning an income of $30,000 p.a. He also receives $15,000 p.a. from his account-based pension, of which only $10,000 is assessed by Centrelink under the deductible amount method, as well as $390 each fortnight from the Age Pension.

He can afford to earn up to another $779 in any fortnight without losing his grandfathered status. He needs to be careful if his employer asks him to pick up more shifts, such as to fill in for other colleagues on leave, because if he earns more than $779, then his account-based pension will be deemed in future, reducing his Age Pension to $310 per fortnight.

Considering working? Ask your financial planner

While this might seem like a disincentive to work, you just need to make sure that you don’t earn enough to push your income over the threshold. Your financial planner can work out all the numbers for you, and tell you exactly how much you can earn without affecting your Age Pension.

So if you have an account-based pension and you’re thinking about working, or working more, consider speaking to your financial planner first.